In the long run, I expect the price of corn to reach new heights, primarily due to the significant carryover of the corn stocks –as interpreted from the USDA’s reports of the month of September. So, my strategy would be to enter the trade in the ‘long’ position and then offsetting it with ‘short’ position, to make some hefty profit. I might enter two contracts next time; one, in which I will only stay in the trade for a few days. And second, in which I will stay for a month or even longer. My prediction of rising corn price was further consolidated after analyzing the stocks-to-use ratio (elaborated in the following link: http://futures.tradingcharts.com/learning/stocks_to_use.html). Note that Jim also talked about the relationship in his class. According to the relationship, as the stock carryover increases, it raises the numerical ratio between stocks and total use (consumption). Therefore, higher carryover will decrease the total use and simple supply and demand understanding tells us that a lower quantity consumed is bound to make price higher. Aside from providing with an understanding of stocks carryover and quantity consumed, this relationship is also used by USDA and other governmental and non-governmental agencies to accurately predict the amount of stocks of a crop in a country.
September 23, 2012
THE ROAD AHEAD (Sept. 23, 2012)
Ahmed Raza
Administrator
Ahmed Raza is a UBC alumnus and currently staff member at the Food and Agriculture Organization of the United Nations (FAO). The views expressed here are his own.
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